TSO3 Reports Fourth Quarter and Full Year 2018 Results
QUEBEC CITY and MYRTLE BEACH, SC, March 27, 2019 /PRNewswire/ - TSO(3) Inc. (TSX: TOS) ("TSO(3)" or the "Company"), an innovator in sterilization technology for medical devices in healthcare settings, reported financial results for the fourth quarter and year ended December 31, 2018.
Business Highlights
In the fourth quarter of 2018, TSO(3) received purchase orders for a record 21 units of its industry-leading STERIZONE(®) VP4 Sterilizer and shipped nine sterilizers to end users.
The Company continues to aggressively uncover new opportunities and now has over 450 sterilizers in its qualified sales pipeline. The Company expects to achieve purchase orders and commitment indications for more than 10 sterilizers in the first quarter of 2019 and currently has 75 STERIZONE(®) VP4 Sterilizers installed at end customer locations.
"In 2018, TSO(3) pivoted from a third-party distribution model to that of a direct sales strategy. This action was taken to increase the pace of deployment of our propriety STERIZONE(®) VP4 Sterilizer," stated R.M. (Ric) Rumble, president and CEO of TSO(3). "Since taking these actions, we are experiencing end customer adoption at rates in excess of past performance, which gives us an early indication that we are on the right path."
2018 Fourth Quarter Financial Summary
-- Revenues equaled $1.1 million, as compared to $0.8 million in the third
quarter of 2018 and $5.8 million in the fourth quarter of 2017. TSO(3)
revenues in the fourth quarter of 2018 reflect sales of sterilizers and
related accessories, service and $0.4 million of consumables directly to
end customers. The Company shipped nine sterilizers to hospitals in the
fourth quarter of 2018 as opposed to four sterilizers to hospitals in
the third quarter of 2018 and 50 sterilizers to its former distributor
in the fourth quarter of 2017.
-- Gross profit was $0.04 million on an IFRS basis ($0.6 million, or 52% of
revenues, on a non-IFRS basis after excluding a non-recurring write-down
of $0.5 million of raw material inventories), as compared to $1.2
million, or 150% of revenues, in the third quarter of 2018 and $2.3
million, or 40% of revenues, in the fourth quarter of 2017.
-- Research and Development (R&D) expenses amounted to $1.1 million on an
IFRS basis ($0.7 million on a non-IFRS basis after excluding a
non-recurring write-down of $0.4 million on sterilizers developed
internally that will not be commercialized in the upcoming year), as
compared to $1.3 million in the third quarter of 2018 and $1.8 million
in the fourth quarter of 2017.
-- Sales, General and Administrative (SG&A) expenses were $2.7 million, as
compared to $2.6 million in the third quarter of 2018 and $2.0 million
in the fourth quarter of 2017.
-- Financial income was $1.1 million, as compared to $0.6 million in the
third quarter of 2018 and an immaterial amount in the fourth quarter of
2017. The Company recorded $0.8 million of accrued interest expense in
the fourth quarter of 2018 related to a $20.0 million debt financing it
obtained in August 2018 and a non-cash gain of $1.8 million on the
revaluation of the embedded derivative within the Convertible Note
associated with this financing.
-- The Company's net loss was $(2.7) million, or $(0.03) per share, as
compared to $(2.1) million, or $(0.02) per share, in the third quarter
of 2018 and to $(1.4) million, or $(0.02) per share in the fourth
quarter of 2017.
-- The Company had $13.0 million in cash, cash equivalents and investments
and $18.0 million of debt as of December 31, 2018, as compared to $16.1
million in cash, cash equivalents and investments and $19.1 million of
debt at the end of the third quarter of 2018.
-- Cash used by the operating activities was $3.0 million, $0.9 million of
which was used in working capital items.
2018 Full Year Financial Summary
-- Revenues equaled $2.5 million in 2018, which includes shipments of 13
sterilizers to medical facilities end customers and associated
accessories, consumables and service, as compared to $19.7 million in
2017 which included shipments of 170 sterilizers to our former
distributor along with accessories, consumables, service and license fee
revenue recognition.
-- Gross profit was $1.0 million, or 39% of revenues in 2018, as compared
to $7.7 million, or 39% of revenues, in 2017.
-- R&D expenses were $5.5 million in 2018, as compared to $6.2 million in
2017. The Company reduced its research and development expenditures as
it focused more of its expenditures on selling and marketing activities.
-- SG&A expenses were $10.3 million in 2018, as compared to $8.7 million in
2017 as the Company grew its sales and marketing team members and
activities while decreasing general and administrative expenditures.
-- Financial income was $1.7 million, as compared to a financial expense of
$0.1 million in 2017. The Company recorded $1.2 million of accrued
interest expense related to a $20.0 million debt financing it obtained
on August 1, 2018 and a non-cash gain of $2.9 million on the revaluation
of the embedded derivative within the Convertible Note associated with
this financing.
-- The Company net loss and comprehensive loss totaled $(13.2) million or
$(0.14) per share, as compared to $(7.5) million or $(0.08) per share of
net loss and comprehensive loss in 2017.
Supplemental Non-IFRS Financial Measures
In addition to IFRS financial measures, management uses non-IFRS financial measures to assess the Company's operational performance. It is likely that the non-IFRS financial measures used by the Company will not be comparable to similar measures reported by other issuers or those used by financial analysts as their measures may have different definitions. The measures used by the Company are intended to provide additional information and should not be considered in isolation or as a substitute for IFRS financial performance measures.
Generally, a non-IFRS financial measure is a numerical measure of an entity's historical or future financial performance, financial position or cash flows that is neither calculated nor recognized under IFRS. Management believes that such non-IFRS financial measures are important as they provide users of the financial statements with a better understanding of the results of the Company's recurring operations and their related trends, while increasing transparency and clarity into its operating results. Management also believes these measures can be useful in assessing the Company's capacity to discharge its financial obligations.
Management is assessing its operational performance using supplemental non-IFRS measures which removes significant unusual items that do not reflect the recurring and ongoing operational results and trends.
Additional Fourth Quarter and Full Year 2018 Financial information
2018 2017
$000's Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
--- ---
Net (loss) (2,676) (2,104) (3,952) (4,512) (1,449) (1,771) (2,254) (1,980)
Financial (income)
expenses (1,055) (599) (12) (14) 74 48 49 (39)
Amortization and
depreciation 235 270 292 315 246 331 221 168
Write-down of
tangible and
intangible assets 1,026 -
Share-based
compensation
expense 369 688 627 371 301 632 592 609
Income taxes 7 11 7 (59) 33 29 27
---
Adjusted Ebitda (2,094) (1,734) (3,038) (3,840) (887) (727) (1,363) (1,215)
---
Adjusted EBITDA, is adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (Adjusted EBITDA). Adjusted EBITDA adjusts net income for (1) significant realized and unrealized foreign exchange gains or losses, (2) financial expenses (income), (3) amortization and depreciation expenses (4) share-based compensation expense, (5) write-downs of certain tangible and intangible assets, (6) one-time write-off of inventory, (7) income taxes, and (8) other significant unusual items.
Summary of Results
Year ended December 31 (Unaudited, IFRS Basis, in
thousands of US dollars, except per share amounts)
2018 2017
$
$
---
Revenues 2,532 19,726
Cost of
sales 1,534 12,068
--- ---
Gross profit 998 7,658
--- ---
Expenses
Research and
development 5,547 6,222
Selling,
general and
administrative 10,348 8,728
Financial
(income)
expenses (1,678) 132
--- ---
Total
Expenses 14,217 15,082
--- ---
Net loss
before
income
taxes (13,219) (7,424)
Income taxes 25 30
--- ---
Net loss and
comprehensive
loss (13,244) (7,454)
--- ---
Weighted
average
number of
outstanding
shares (in
thousands) 93,108 92,508
--- ---
Basic and
diluted net
loss per
share (0.14) (0.08)
--- ---
Basic and
diluted net
comprehensive
loss per
share (0.14) (0.08)
--- ---
Fourth Quarter Analysis
(Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts)
Three-month period ended December 31, 2018, compared to the three-month period ended December 31, 2017:
Fourth Quarter
Fourth Quarter
2018 2017
$
$
---
Revenues 1,122 5,780
Cost of sales 1,083 3,455
---
Gross profit 39 2,325
---
Expenses
Research and development 1,095 1,766
Selling, general and administrative 2,667 1,993
Financial (income) expenses (1,054) 74
---
Total Expenses 2,708 3,833
---
Net loss before income taxes (2,669) (1,508)
Income taxes 7 (59)
---
Net loss and comprehensive loss (2,676) (1,449)
---
Weighted average number of outstanding shares
(in thousands) 93,108 92,508
---
Basic and diluted net loss per share (0.03) (0.02)
---
Basic and diluted net comprehensive loss per share (0.03) (0.02)
---
Consolidated Statements of Financial Position
As of December 31, 2018, and 2017 (Unaudited, IFRS Basis, in thousands of
US dollars)
2018 2017
$
$
---
Current Assets
Cash and Cash
Equivalents 12,961 8,044
Investments - 6,764
Accounts Receivable 1,591 651
Inventories 3,534 2,040
Current Tax Assets 16
Prepaid Expenses 261 150
--- ---
18,363 17,649
Non-current Assets
Property, Plant and
Equipment 2,039 3,184
Intangible Assets 1,781 1,886
--- ---
3,820 5,070
---
22,183 22,719
---
Current Liabilities
Accounts Payable and
Accrued Liabilities 1,858 2,430
Warranty Provision 273 1,263
Current Tax Liabilities - 68
Deferred Revenues 103 6
--- ---
2,234 3,767
Non-current Liabilities
Deferred Tax
Liabilities 51 17
Debt 16,711
Embedded Derivative 1,319
Deferred Revenues - 6,044
--- ---
20,315 9,828
---
Equity
Share Capital 111,470 111,215
Reserve - Share-based
Compensation 8,540 6,574
Deficit (116,430) (103,186)
Accumulated Other
Comprehensive Loss (1,712) (1,712)
--- ---
1,868 12,891
---
22,183 22,719
---
Consolidated Statements of
Cash Flows
As of December 31, 2018 and
2017 (Unaudited, IFRS Basis,
in thousands of US dollars)
2018 2017
$
$
Cash flows from operating
activities
Net loss (13,244) (7,454)
Adjustments for:
Depreciation and amortization 1,112 966
Loss on write-down of
property, plant and equipment 450 46
Loss on write-down of
intangibles assets 98
Loss on write-down of
inventories 544
Income tax (84) (92)
Deferred income tax
liabilities 34 68
Share-based Compensation 2,055 2,134
Reversal of warranty provision (973)
Capitalized interest on long
term debt 1,210
Gain on re-measurement at
fair-value on embedded
derivative (2,898)
Investment income (111) (131)
---
(11,807) (4,463)
Changes in non-cash operating
working capital items (9,730) 1,148
Interest received 149 185
---
Cash flows used by operating
activities (21,388) (3,130)
---
Cash flows from investing
activities
Acquisition of investments (6,349)
Disposal of investments 6,726 16,091
Acquisition of property, plant
and equipment (107) (1,569)
Acquisition of intangible
assets (198) (239)
Proceed from disposal of
property, plant and equipment 2
---
Cash flows used in investing
activities 6,421 7,936
---
Cash flows from financing
activities
Issuance of debt net of
financing fees 20,000
Financing fee (282)
Options exercised 166 540
---
Cash flows generated by
financing activities 19,884 540
---
Increase in cash and cash
equivalents 4,917 5,346
Cash and cash equivalents at
the beginning 8,044 2,698
---
Cash and cash equivalents at
the end 12,961 8,044
---
Consolidated Statements of Cash Flows
(Unaudited, IFRS Basis, in thousands of US dollars)
Three-month period ended December 31, 2018, compared to the three-month
period ended December 31, 2017:
Q4-2018
Q4-2017
$
$
---
Cash flows from operating activities
Net loss (2,676) (1,449)
Adjustments for:
Depreciation and amortization 235 251
Loss on write-down of
property, plant and equipment 384 6
Loss on write-down of
intangible assets 98 -
Loss on write-down of
inventories 544 -
Current and Deferred income
tax liabilities (50) (113)
Capitalized interest on long
term debt 765 -
Gain on re-measurement at
fair value on embedded
derivative (1,795) -
Share-based compensation 369 301
Investment income (42) 8
---
(2,168) (996)
Changes in non-cash operating
working capital items (894) 265
Interest received 43 57
---
Cash flows used in operating
activities (3,019) (674)
---
Cash flows from investing activities
Acquisition of investments - (3,440)
Disposal of investments - 5,077
Acquisition of property, plant
and equipment (10) (513)
Acquisition of intangible
assets (96) (50)
---
Cash flows used in investing
activities (106) 1,074
---
Cash flows from financing activities
Financing fee 4 -
---
Cash flows generated by
financing activities 4 -
---
Increase (decrease) in cash
and cash equivalents (3,121) 400
Cash and cash equivalents at
the beginning 16,082 7,644
---
Cash and cash equivalents at
the end 12,961 8,044
---
Conference call
TSO(3) President and CEO R.M. (Ric) Rumble and CFO Glen Kayll, will host the conference call, followed by a question and answer period.
Date: Thursday, March 28, 2019
Time: 8:30 a.m. Eastern Daylight
Time
Toll-free dial-in number:
1-888-231-8191
International dial-in number: 1-514-807-9895 (Montreal);
1-647-427-7450 (Toronto)
Conference ID: 3932989
Analysts and institutional investors are invited to participate on the call. Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Danielle Ste-Marie, Ste-Marie Strategy & Communications Inc., Tel: 1-514-465-6701
Other interested parties may listen to the live webcast of the conference call at https://event.on24.com/wcc/r/1950265/F70721F46E344D3AB217AD37866C4EE2 which will be available for replay in the Investors section of the Company's website at www.tso3.com.
Fourth Quarter and Fiscal 2018 Results Disclosure
The 2018 Annual Report is available on TSO(3)'s website at www.tso3.com and full 2018 disclosure will shortly be available on SEDAR (www.sedar.com).
About the STERIZONE(®) VP4 Sterilizer
The STERIZONE VP4 Sterilizer is a low-temperature sterilization system that utilizes the dual sterilants of vaporized hydrogen peroxide (H(2)O(2)) and ozone (O(3)) to achieve terminal sterilization of heat and moisture-sensitive medical devices. Its single pre-programmed cycle can sterilize a large number and wide range of compatible devices, creating a cost-effective sterilization process with error-free cycle selection. The device's unique Dynamic Sterilant Delivery System(TM) automatically adjusts the quantity of injected sterilant based on the load composition, weight and temperature. This capability removes the guesswork and potential for human error, as there is no need to sort instruments and choose the appropriate cycles as with other machines.
The STERIZONE(®) VP4 Sterilizer is the only terminal sterilization method that is FDA cleared to sterilize long, multi-channel flexible endoscopes (with a maximum of four channels) of up to 3.5 meters in length - an industry first for any medical device sterilization process.
The STERIZONE(®) VP4 Sterilizer is also the only cleared low temperature sterilizer that can process a mixed load consisting of general instruments, single channel flexible endoscopes, and single or double channel rigid endoscopes in the same cycle with load weights of up to 75 lb. The ability to run mixed loads significantly reduces labor costs by minimizing the amount of instrument sorting required, while maximizing the device turns (more productivity from increased throughput capacity).
More information about the STERIZONE(®) VP4 Sterilizer is available through TSO(3)'s website, under the Products section at www.tso3.com.
About TSO(3)
Founded in 1998, TSO(3)'s activities encompass the sale, production, maintenance, research, development and licensing of sterilization processes, related consumable supplies and accessories for heat-sensitive medical devices. The Company designs products for sterile processing areas in the hospital environment that offer an advantageous replacement solution to other low temperature sterilization processes currently used in hospitals. TSO(3) also offers services related to the maintenance of sterilization equipment and compatibility testing of medical devices with such processes.
For more information about TSO(3), visit the Company's website at www.tso3.com.
The statements in this release and oral statements made by representatives of TSO(3) relating to matters that are not historical facts are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, the limited history of sales or distribution of the Company, the evolution in customer demand for the Company's products and services, the plans for sales and marketing including the fact that the Company's customers may not commit to any purchases, the ability of the Company to obtain the required regulatory clearances to market its products, general business and economic conditions, the condition of the financial markets, the ability of TSO(3) to obtain financing on favourable terms and other risks and uncertainties. Although TSO(3) believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The complete versions of the cautionary note regarding forward-looking statements as well as a description of the relevant assumptions and risk factors likely to affect TSO(3)'s actual or projected results are included in the Management's Discussion and Analysis for the year ended December 31, 2018, which is available on the Company's website. The forward-looking statements contained in this press release are made as of the date hereof, and TSO(3) does not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.
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SOURCE TSO3 Inc.
